Crowdfunding Analysis: Commercial, Social, and Australian Regulations

This report provides a comprehensive overview of crowdfunding, beginning with an introduction to its concept and procedure. It details how crowdfunding differs from traditional investment sources and highlights its growing popularity among entrepreneurs. The report then examines various examples of successful crowdfunding projects in both commercial and social sectors, including case studies from Australia and internationally. A significant portion of the report is dedicated to analyzing the legal structure of crowdfunding in Australia, focusing on the Corporations Amendment (Crowd-sourced Funding) Act 2017 and its implications. The report compares Australian regulations with those of other countries, such as the United States and the United Kingdom, offering insights into the advantages and disadvantages of each approach. The conclusion summarizes the benefits of crowdfunding for small businesses and entrepreneurs, emphasizing its role in fostering innovation and economic growth. The report is supported by a comprehensive bibliography of relevant sources.

Running head: CROWDFUNDING 0
Business and Company Law

CROWDFUNDING 1
Contents
Introduction................................................................................................................................2
Crowdfunding Procedure...........................................................................................................3
Examples of Crowdfunding in Commercial and Social Projects...............................................4
Legal Structure of Crowdfunding in Australia...........................................................................5
Conclusion..................................................................................................................................8
Biblography................................................................................................................................9

CROWDFUNDING 2
Introduction
Crowdfunding allows small start-ups and entrepreneurs to raise funding for their business
ideas. It is different from traditional investment sources such as venture capitalists, banks, or
investment firms. The investors of crowdfunding include family members, relatives, friends
and other small investors. There are large numbers of entrepreneurs with fresh ideas, who are
looking for funding for their business projects. It is difficult for large financiers to invest in
each one of them; therefore, crowdfunding has gain significant popularity between small
entrepreneurs.
This essay will describe several aspects of crowdfunding to Howard Jones, to assist him in
making a decision of funding his idea with crowdfunding or traditional sources of income.
The success of crowdfunding in commercial and social sectors will also be analysed in the
essay. Further, the essay will value the Australian regulation regarding crowdfunding and
compares it with other countries regulations.

CROWDFUNDING 3
Crowdfunding Procedure
Crowdfunding is a procedure of financing an idea or business from a large number of small
financier’s investments1. Crowdfunding is a part of a crowd-sourced funding and alternating
investment. The crowdfunding is different from traditional sources of funding a project such
as a venture capitalist, bank debt or investment corporations. Generally, these financiers
invest their capitals in a large-scale project, and these investors are limited in numbers.
Crowdfunding gives small entrepreneurs funding for their projects, so they can expand, create
and share their ideas with the world2. The projects of entrepreneurs are funded by a large
number of small financiers. There are various online portals which assist entrepreneurs in
sharing their ideas and small investors to invest in such ideas3.
There are four different types of crowdfunding options available for entrepreneurs. The first
option is reward-based crowdfunding, in which the entrepreneurs provide rewards and
incentive to the financiers who invest in their ideas. The second method is equity-based
crowdfunding where the investors get shares for the investment they provide. The third
method is charity based crowdfunding where the purpose of crowdfunding is some social
cause. The fourth type based on lending crowdfunding, in which the investment provided by
financiers to entrepreneurs is considered as loan and the entrepreneurs pay such loan with
interest4.
There are few steps that an entrepreneur must follow before raising investment through
crowdfunding method. The most important step is disclosure of complete and necessary
information regarding the project. The entrepreneur must not hide or alter any information
from the financiers. The information includes various specifics such as product details, the
goal of business, the requirement of funds, and time frame of the project and reward given to
the financiers5. All such information must be posted by entrepreneurs over the online portals
for crowdfunding.
1 Rebecca A. Laycock. Crowdfunding and independent screen content production in Australia: A direct
economic relationship between producer and audience. Diss. Queensland University of Technology,
2015.
2 Jeff Fitzpatrick, et al. Business and corporations law. LexisNexis Butterworths, 2011.
3 Denis A. Profatilov, Olga N. Bykova, and Maria O. Olkhovskaya. "Crowdfunding: Online Charity or a
Modern Tool for Innovative Projects Implementation?." Asian Social Science 11.3 (2014): 146.
4 Aleksandrina Ralcheva, and Peter Roosenboom. "On the road to success in equity crowdfunding."
(2016).
5 Paul Belleflamme, Thomas Lambert, and Armin Schwienbacher. "Crowdfunding: Tapping the right
crowd." Journal of business venturing 29.5 (2014): 585-609.

CROWDFUNDING 4
Examples of Crowdfunding in Commercial and Social Projects
The popularity of crowdfunding will assist the Australian entrepreneurs in raising funds for
their creative ideas. This development will assist in the growth of Australian economy. In
Australia, Indigogo and Kickstarter are the two most popular websites for crowdfunding6.
These websites provide investment to small entrepreneurs for various projects. A popular
Australian game developing corporation called ‘Satellite Reign’ raised an investment of
$461,333 in 2016, for their real-time strategy video game through crowdsourcing7. They use
Kickstarter website to post the requirement of investment for their project. More example of
successful crowdfunding in commercial context includes Fame & Partners and CrowdMobile.
These technical corporations raised an investment of $2 million through crowdsourcing in
2013. Kickstarter reported that in 2014, more than 22 thousand small projects raised
investment through crowdfunding. These businesses raised more than $500 million through
the online platform of Kickstarter. Many small Australian corporations raised their
investment through crowdfunding methods such as Ninja Blocks and KoalaSafe.
Crowdfunding raised funds for not just entrepreneur projects, but many social caused were
funded through crowdfunding. Various charitable organisations and individuals use
crowdsourcing to raise funds for specific social objectives. For example, Eliza was suffering
from Sanfilippo syndrome, due to which she was unable to walk, talk or eat her food. She had
this disease when she was 4 years old. Eliza’s father made several videos of her daughter’s
condition and uploaded them to social media sites to raise funding for her treatment. The
money raised through social media websites was not enough since the treatment of Eliza cost
more than $2.5 million. The video of Eliza was seen by Benjamin Von Wong, who is a movie
director. He made a small movie on Eliza called ‘Saving Eliza’ and uploaded it over social
media websites. The movie gained a lot of attention and raised a donation of $380,000
through crowdfunding. Currently, the crowdfunding page of Eliza has raised more than $1.8
million for her treatment8.
6 Claudia Isac. "Crowdfunding–An Alternative For Financing A Business." Annals of the University of
Petrosani, Economics 14.2 (2014): 133-140.
7 Rebecca English. "Rent-a-crowd? Crowdfunding academic research." First Monday 19.1 (2013).
8 Ferran Giones, and Pyayt Oo. "How Crowdsourcing and Crowdfunding are Redefining Innovation
Management." Revolution of Innovation Management. Palgrave Macmillan UK, 2017. 43-70.

CROWDFUNDING 5
Legal Structure of Crowdfunding in Australia
Crowdfunding is a fairly modern method of raising funding in Australia. The government is
adopting the regulation of crowdfunding slowly by passing the act for crowdfunding on 28th
March 2017. The Corporations Amendment (Crowd-sourced Funding) Act 20179 introduced
various new guideline issued by Australian government regarding crowdfunding. This act
amended Corporations Act 2001 and added various new principles regarding crowdfunding
for small corporations. This act also added few new regulations in Australian Securities and
Investments Commission Act 2001. The new amendments regarding crowdsourcing have
changed the procedure of Australian market license, by providing various exemptions to the
market operators10.
This act is applied over unlisted organisations with a yearly turnover and asset value lower
than $25 million. The organisations that are not subsidiary or related to other listed
corporations are also covered under this act. The act gives these organisations right to raise
funding up to $5 million through the crowdfunding procedure in a year. The new act also
provided regulations regarding new disclosure system which dismissed the requirement of
some corporate social responsibility procedures and made the process easier for the
organisation. A proposal document and online platform should be mentions in the offer of
crowdfunding. All the necessary details regarding the crowdfunding offer must be included in
the proposal document. Small scale investors have right to invest ten thousand dollars in
crowdfunding projects. The investors must accept the risk of crowdfunding process in five
days.
The investment of wholesale investors was restricted by the new act of crowdsourcing. The
wholesale investors can invest a certain amount of capital in one particular crowdfunding
project. But the act does not restrict the number of projects in which wholesale investors can
invest11. There is no such limit available in crowdfunding regulations of other countries such
as the United States and the United Kingdom12. The lack of limits assists entrepreneurs to
raise a large amount of investment for their projects. The Australian regulations are strict than
other countries regarding the crowdfunding procedures. After passing the act for
9 Parthena Maria Malouta. "Legal aspects of crowdfunding." (2017).
10 Gail Pearson. "Further challenges for Australian consumer law." Consumer Law and Socioeconomic
Development. Springer, Cham, 2017. 287-305.
11 Andrea Beatty, et al. "Crowdfunding to take-off in Australia?." Governance Directions 67.2 (2015):
100.
12 Franck Juredieu, and Sébastien Mayoux. "Crowdfunding Legal Framework: An International
Analysis☆." International Perspectives on Crowdfunding: Positive, Normative and Critical Theory.
Emerald Group Publishing Limited, 2016. 81-97.

CROWDFUNDING 6
crowdfunding, the government received a large amount of criticism from start-ups and
market experts. The limit provided by Australian act limits the possibilities of large funding
for individual projects13.
Other countries such as the United States, New Zealand, and the United Kingdom have more
open and easier regulations regarding the crowdfunding procedure. In united states, the
crowdfunding procedure is used by entrepreneurs to raise funding for their different and
unique business ideas. For example, Oculus Rift raised an investment of $2.5 million through
crowdfunding by using Kickstarter website. In 2014, Facebook bought Oculus Rift for $2
billion and it is still one of the biggest examples of crowdfunding success14. The amount rises
through crowdfunding in 2015 was more than $34.4 billion worldwide. Australia can adopt
the policies of other countries to improve their procedure of crowdfunding. The policies
adopted by the Australian government is definitely a step forward in the improvement of
crowdfunding procedure but there is still room for significant improvement. The regulations
adopted by Australia does not benefit small entrepreneurs, as compared to other countries15.
The restriction imposed by Australian government restrict small entrepreneurs from using
crowdfunding for raising investment for their projects.
Howard Jones can use either crowdfunding method or other traditional methods for raising
funding for his idea. For Howard Jones, crowdfunding is a better method for raising
investment then compared to other traditional sources. Other traditional sources limit the
control of Howard Jones from his own project since they are large corporations, and they
prefer to do work according to them. But in case of crowdfunding, Howard Jones would have
the ability to control the decision of his projects. Although the regulations of the Australian
act have imposed various restrictions on the crowdfunding procedure, still it is a far better
option than other traditional investment sources.
13 Eleanor Kirby, and Shane Worner. "Crowd-funding: An infant industry growing fast." IOSCO,
Madrid (2014).
14 Denis A. Profatilov, Olga N. Bykova, and Maria O. Olkhovskaya. "Crowdfunding: Online Charity or a
Modern Tool for Innovative Projects Implementation?." Asian Social Science 11.3 (2014): 146.
15 Matt Vitins. "Crowdfunding and Securities Laws: What the Americans are doing and the case for an
Australian crowdfunding exemption." JL Inf. & Sci.22 (2012): 92.

CROWDFUNDING 7
Conclusion
The above essay concluded that crowdfunding assists small entrepreneurs and businesses to
raise funding for their ideas through small financiers. It can be used for business as well as
charitable purposes. In different countries such as the United States and the United Kingdom,
crowdfunding’s popularity has grown significantly. Many small entrepreneurs and
organisations are using it to raise funding for their unique and creative ideas. Australia has
implemented the regulations of crowdfunding but there is still room for improvement. Most
of the entrepreneurs and market experts are not satisfied with the Australian regulations, but
it is still a positive option for small entrepreneurs. Howard Jones can have various advantage
if he decided to raise investment through crowdfunding processes such as lack of stress from
a large corporation and more control on the project. The small business in Australian
economy has the opportunity to expand their business by using crowdfunding as a route to
raise investment.

CROWDFUNDING 8
Biblography
Beatty, Andrea, et al. "Crowdfunding to take-off in Australia?." Governance Directions 67.2
(2015): 100.
Belleflamme, Paul, Thomas Lambert, and Armin Schwienbacher. "Crowdfunding: Tapping
the right crowd." Journal of business venturing 29.5 (2014): 585-609.
English, Rebecca. "Rent-a-crowd? Crowdfunding academic research." First Monday 19.1
(2013).
Fitzpatrick, Jeff, et al. Business and corporations law. LexisNexis Butterworths, 2011.
Giones, Ferran, and Pyayt Oo. "How Crowdsourcing and Crowdfunding are Redefining
Innovation Management." Revolution of Innovation Management. Palgrave Macmillan UK,
2017. 43-70.
Isac, Claudia. "Crowdfunding–An Alternative For Financing A Business." Annals of the
University of Petrosani, Economics 14.2 (2014): 133-140.
Juredieu, Franck, and Sébastien Mayoux. "Crowdfunding Legal Framework: An International
Analysis." International Perspectives on Crowdfunding: Positive, Normative and Critical
Theory. Emerald Group Publishing Limited, 2016. 81-97.
Kirby, Eleanor, and Shane Worner. "Crowd-funding: An infant industry growing
fast." IOSCO, Madrid (2014).
Laycock, Rebecca A. Crowdfunding and independent screen content production in Australia:
A direct economic relationship between producer and audience. Diss. Queensland University
of Technology, 2015.
Malouta, Parthena Maria. "Legal aspects of crowdfunding." (2017).
Pearson, Gail. "Further challenges for Australian consumer law." Consumer Law and
Socioeconomic Development. Springer, Cham, 2017. 287-305.
Profatilov, Denis A., Olga N. Bykova, and Maria O. Olkhovskaya. "Crowdfunding: Online
Charity or a Modern Tool for Innovative Projects Implementation?." Asian Social
Science 11.3 (2014): 146.

CROWDFUNDING 9
Profatilov, Denis A., Olga N. Bykova, and Maria O. Olkhovskaya. "Crowdfunding: Online
Charity or a Modern Tool for Innovative Projects Implementation?." Asian Social
Science 11.3 (2014): 146.
Ralcheva, Aleksandrina, and Peter Roosenboom. "On the road to success in equity
crowdfunding." (2016).
Vitins, Matt. "Crowdfunding and Securities Laws: What the Americans are doing and the
case for an Australian crowdfunding exemption." JL Inf. & Sci.22 (2012): 92.